You could call it a hot business trend or a natural evolution. Either way, you'd be right. Advancing technology, dissatisfaction with corporate life and the ever-increasing collective strength of small business are all contributing to the explosive growth in homebased businesses.

According to research and consulting firm Find/SVP, approximately 18.3 million self-employed Americans work at home--and those numbers are projected to continue growing.

"Whether it's operating a full-time or part-time business, there's been a steady growth in homebased business," confirms Cheryl Eftink, deputy district director of the SBA in Des Moines, Iowa. "Homebased entrepreneurship fits the lifestyles and the work styles of more and more people each year." Technology has made it much easier to operate a variety of businesses from home, where overhead is lower, tax advantages are greater and the commute is nil.

Sounds great, doesn't it? Before starting any homebased business, however, you must be able to answer two critical questions: Are you personally suited to working in a homebased environment? Can your business idea succeed without a commercial location?

Successful homebased business owners are disciplined but flexible self-starters who thrive on challenges. To make sure you're the kind of person who will enjoy working from home, Pam Meyers suggests taking a personality or aptitude test before moving forward with your business. Meyers owns Independent Business Solutions in Oklahoma City, a homebased service that provides independent administrative assistance to other businesses. She says such tests are administered through temporary employment agencies or by local colleges and universities. The fee is usually modest--typically, $50 to $75--and what you discover about your abilities can be invaluable in ensuring your success. For example: "You may find that you're not cut out to handle a homebased business solo, but that you could develop a business with another person," Meyers says.

Once you have an idea of the type of business you want to start, consider what you need in the way of space, equipment and location. Then evaluate your home to see if it meets those needs.

Jacquelyn Lynn is a freelance writer in Winter Park, Florida.

Make It Legal

Your home may be your castle, but don't assume you can do
anything you want in it. Many municipalities have ordinances that
limit the nature and amount of commercial activities in residential
areas. Some prohibit homebased businesses altogether. Others allow
homebased businesses but restrict signage, traffic, employees,
commercial vehicles and noise.

"Cities are just starting to recognize homebased businesses
as legitimate business entities," says Sean Fitzgerald,
managing director of Destination Irvine, a public/private economic
development program in Irvine, California. Fitzgerald recommends
finding out what, if any, ordinances are in place regarding
homebased businesses before applying for your business license; you
may need to adjust your plan to be sure it complies with these
laws. Call your local city hall's general information number
and ask to be referred to the appropriate department--usually the
planning and zoning department, or perhaps the business and
occupational licensing office.

If you're unhappy with local regulations, Fitzgerald says,
get involved in the local political process and work to change the
rules. In the meantime, you may be able to get around the
restrictions by applying for a variance with your zoning
commission. The key is to be flexible and use common sense.
It's only fair to run your business in a manner that won't
negatively affect the neighborhood. "Be aware you're in a
`Do unto others' situation," Fitzgerald says.
"Don't do things you wouldn't want others to
do."

In rural areas, there may be no restrictions at all. When
Givhans, South Carolina, residents David Campbell and Glenn Turner
started C&T Small Engine Repair LLC in Campbell's garage,
they were far enough out in the country that there were no
ordinances restricting the type of business they could run.

Once you've confirmed that you can indeed start the business
of your dreams in your home, check with your insurance agent to be
sure you either have or can get the insurance you need. Many
homebased entrepreneurs learn the hard way that traditional
homeowners policies cover their businesses inadequately or not at
all. Fortunately, the insurance industry has recognized the
opportunity in insuring homebased businesses, and many companies
are creating new plans targeted to homebased entrepreneurs.

Sit down with your insurance agent to analyze exactly what your
potential risks and liabilities are, as well as the cost and type
of coverage available, before you begin investing in
business-related furnishings and equipment. (For more on insurance,
see "How To: Insure Your Homebased Business" in the May
1998 issue of Business Start-Ups.)

Setting Up Shop

Where in your house should your office be? For Meyers, the
decision was easy. "I have the corner office with windows, of
course," she says, poking fun at that traditional trapping of
corporate success. Her office is in a spare bedroom with windows in
two walls.

When choosing a location, examine your needs and available
space, then try to blend the two. If clients visit your office,
it's best to have an office with a separate entrance so
customers don't have to traipse through your home. Ideally,
your home office should be a separate room with a door you can shut
to concentrate in privacy. If this isn't possible, be creative.
Many furniture makers sell armoire-like home-office units that
unfold during the day and close up at night so your work is out of
sight. The goal is to arrange a work area that's functional and
doesn't overtake your personal space.

When Jenny Taliadoros started Main Street Stamps in Kingfield,
Maine, she was living in a small house and set up her office in the
dining room. But as her business--which designs and manufactures
art stamps--grew, so did the space it took. "It was taking
over the whole house," Taliadoros recalls. "I was always
working, so it was always there." Eventually, she moved into a
bigger house, where she could use a basement as an office. It's
comfortably decorated, completely equipped and situated in a way
that allows her to close the door and leave her business
behind.

When furnishing and equipping your office, figure out what you
must have (and can afford) and what you can do without for now.
When Turner and Campbell set up their business, their initial focus
was on buying the tools and equipment they needed to provide mobile
and on-site small-engine repair service. To keep costs down, they
bought the bare minimum of furnishings: two desks, a file cabinet
and a microfiche machine, which they needed to read parts lists.
They expect to computerize their record-keeping later this
year.

Here's the basic equipment you'll want to consider:

Computer and printer. Even if your actual work
doesn't require a computer, you need one for correspondence,
record-keeping and e-mail capabilities. Include a backup system,
and use it to avoid losing critical data. An uninterruptible power
supply (UPS) is essential, too, to protect your work-in-progress
from unexpected power outages. Laser printers provide the most
professional-looking output; they cost more, but your business
image is worth the investment.

Separate phone line. Have a separate phone line
dedicated to the business. Always answer it with the company name;
make sure it's off-limits to children and other household
members not involved with the business.

Answering machine/voice mail system. Your business
should have its own answering system for times when you can't
take calls. Whether you use a machine or voice mail (most phone
companies offer this service for a nominal monthly charge) is a
matter of preference. Make your announcement professional, concise
and complete; this is not the place to be cute or clever.

Telecommunications features. Analyze your communication
needs and the appropriate equipment and services to meet them. Ask
your local phone company what services it offers. Add-ons such as
call waiting, three-way calling and caller ID can enhance your
productivity.

Fax machine. Sending and receiving faxes through your
computer is slow and interrupts your work. Invest in a stand-alone
machine with its own phone line so you can send and receive faxes
24 hours a day, whether your computer is on or not.

Postage meter. Although it's not essential for all
businesses, metered mail gives your company a "big
business" look. If you mail more than 10 or 15 pieces per day,
and especially if sizes and weights vary, a meter with an
electronic scale can save you time and money.

Copier. Consider what your copy volume is likely to be,
and do a cost/benefit analysis. For very small quantities, your fax
machine may be adequate, but an actual photocopy machine will give
you better quality at a much lower cost per copy.

Furniture. It doesn't have to be fancy, but it must
be adequate. Be sure your desk and chair are comfortable and
ergonomically sound. You also need sufficient and convenient
storage space for files and records.

Cellular phone. Unless you rarely leave the office, a
cellular phone is an important communication tool. Cellular service
is becoming more affordable by the day, so shop around for the best
deal.

Pager. If your customers need to reach you in a hurry, a
pager is usually the best tool. Don't want to give out your
cell-phone number and incur the cost of unwanted calls? Give out
your pager number instead; that way, you can decide which calls to
return and when.

For many homebased business owners, the car is an extension of
the office. Be sure it's appropriately stocked with supplies.
Meyers, for example, keeps a notebook in her car with an
information and time sheet for each client so she can respond to
their needs when she's out of the office.

Tax Facts

Because expenses related to running your business are generally
tax-deductible--and the IRS has relaxed the rules on what is an
allowable home-office deduction--the tax advantage of being
homebased is more attractive than ever. "If your home is your
principal place of business, or if you use a home office to meet
with customers in the normal course of your business, you can
deduct certain expenses related to maintaining your home
office," says Charles L. Norman, a senior manager specializing
in entrepreneurial services with Ernst & Young LLP in Toledo,
Ohio.

In the past, the IRS disallowed the home-office deduction if you
performed your actual work at other locations, such as client
offices, and used your home office simply for administrative
functions. But that changed in 1999, says Norman, when a home
office will be considered a principal place of business if you use
it for administrative or management activities and there's no
other fixed location where you conduct similar activities. In other
words, even if you perform much of your work outside your home,
your home office will be deductible.

Expenses that benefit only the business area of your home, such
as the cost of carpeting an office, are deductible. You can also
deduct a portion of indirect expenses--the costs involved in
maintaining your entire home, such as utilities (electricity, trash
collection and the like). Deductions are based on the percentage of
space you use for business purposes, so if your office takes up 10
percent of your home's square footage, you can deduct 10
percent of your utility costs. Other indirect expenses include real
estate taxes, deductible mortgage interest, casualty losses, rent,
insurance, repairs, security systems and depreciation.

Many taxpayers worry that taking the home-office deduction will
trigger an IRS audit, but if your deductions are legitimate and
you've kept good records, that shouldn't be an issue, says
Norman. To maintain complete and accurate records, he advises using
any of the popular bookkeeping and accounting software programs to
track income and expenses. Set up a filing system for receipts, and
discipline yourself to stay current with your record-keeping.
"Keep your records for at least three years from the date the
return was filed or two years from the date the tax was paid,
whichever is later," says Norman.

Also set up a separate bank account for your business. This not
only helps document your financial details for tax purposes, but it
helps you establish yourself with your banker and other potential
lenders, as well as creating a professional image with vendors.

Head Room

"The rules for running a homebased business are the same as
for running any business," says Eftink at the SBA. Even so,
there are some psychological differences you'll need to deal
with.

Isolation can be a major problem for homebased business owners.
If you thrive on solitude, you're likely to love working from
home--but if, like most people, you need human interaction, you
must either choose a business that puts you in regular contact with
customers or find another way to meet that need. For example,
joining networking organizations or leads exchange groups can give
you a welcome opportunity to socialize and promote your business at
the same time.

When you're homebased, it's easy for the distinction
between work and home to blur. Business projects tend to spill over
into personal times and spaces. To stay sane, Eftink recommends
drawing a clear line between your personal and business lives.
"Start the day as if you're heading to a traditional
office," she says. "Keep your home work separate from
your home life."

Some homebased business owners say exercising the discipline to
work hard enough is a challenge, but for many more, the problem is
just the opposite: They don't know when to stop working.
Every start-up business requires long hours, but when your business
is always at hand, the temptation to work all the time is harder to
resist. Schedule breaks and downtime to stay healthier and more
productive in the long run. Remember, the goal is to work at
home--not to feel like you live at work.

Remember, too, that being a homebased sole operator doesn't
necessarily mean you have to do everything yourself. Look for tasks
you can outsource--often to other homebased businesses. These
include administrative chores (accounting, record-keeping, word
processing); sales and marketing; and even production. When
Taliadoros started Main Street Stamps, she did everything
herself . . . at first. "I wanted my
business to grow, but I couldn't do it alone," she says.
Taliadoros contracted with independent representatives to handle
sales and hired contract laborers to help with production.

The most important ingredient in success? Take your business as
seriously as you want others to. Go through the basic steps that
are essential to any successful business--have a plan, know your
market and secure adequate funding before you start. Insist that
friends and family give your homebased business the same respect
they would give it in a commercial location. And why shouldn't
they? As a homebased business owner, you're on the leading edge
of an exciting wave that's changing the way America works.

Creating a MAP will take no more than an hour of your time every month and will keep the lines of communication open, ensuring relationships with investors remain strong, and ultimately helping early-stage startups succeed.